Perhaps Lewis Lapham is correct, we’re like dissolute heirs to great fortune, who assume their bankers will always rollover the ever-growing family debt. Fortunately on every possible occasion we diligently recite our national mantra: “It’s not my fault.” So when China nails a Forclosure Notice to the White House door, we’ll know what to do.

21 thoughts on “Why didn’t you consider this the most frightening thing you read this Halloween?”

I have a theory but I don’t think you’ll like. People fall into two camps on this type of subject:

1) Those who are concerned about these topics and already know something of what you are talking about. They tend towards doom ‘n gloom forecasts and so look at the numbers you gave and compare it to their own horrific forecasts and shrug, saying something to the effect of “not as bad as I predicted.” This represents roughly 5-10% of the population

2) The other 90-95% of the population who don’t want to know about the problem and assume that the people in group #1 will handle the problem for them.

Your response to one of my comments on this topic was very appropriate. Macroeconomics is a vast and complex subject, our theories only describe the obvious surface, not the deep complexities, and our predictions are often wrong.

Given this, why should the vast majority of people worry? All they have to do is have faith that once again the theory is wrong and some unforeseen circumstance will save us.

This is a lot easier than preparing for a future that may or may not occur. Look at Y2K, all of the DHS alarms that amounted to basically nothing, various Federal warnings on debt that have gone unheeded for the last 30 years with no obvious consequences. Our people have become very comfortable with the idea that they don’t need to change their lives to accommodate reality.

All people like you and I can do is to raise the general knowledge level as much as possible and prepare our own personal life rafts so that we have something to cling to if the worst should occur.

That said, we seem to be the axiomatic frog in the boiling pot. We’ve not had a huge event where the government or the media have indicated that we will have to change our lifestyles (remember when Bush responded to 9/11 by telling America to go shopping?). Instead we’ve had incomes trimmed and expenses added, rights reduced for our own protection (sometimes with our flagrant approval).

Each little stroke weakens the body politic and reduces its ability to resist future blows.

It looks like somebody running a good company into the ground. Borrow as much as possible on whatever terms are available, turn everything you can into cash, again, not too concerned about the terms, move the money offshore, and use a corporate veil to deflect accountability. Yes, we are a republic, therefore we are responsible, no question. But we are too fearful as a people, and this enables the policy elite to borrow fantastic sums in our name, in order to “protect us”, whether it’s from “another 9-11” or “another Great Depression” or whatever is the looming catastrophe of the moment. Americans are so fearful as a people, that it will probably have to be the creditors who finally shut it down, because the policy elite will always be able to come up with something to scare Americans.

Still, hope abides, as you say. I saw this guy, Matthew Hoh, on Fareed Zakaria yesterday, saying a lot of the things you have been saying about the Afghan adventure. He made me think of Ellsberg somehow.
* Resignation letter of Matthew P. Hoh, Sr. Civilian Representative, Zabul Province, Afghanistan
* CNN website of Fareed Zaharia

Yea except if that was the case nothing would get done anywhere in any country.

This is the myth of information – that if people ‘only knew’ they would do something.
The reality is that it’s not an information problem it’s a values problem.

I can hear all the conservatives cheering – but the values that are the biggest problem are exactly the ones they are most fond of.

>All people like you and I can do is to raise the general knowledge level as much as possible and prepare our own personal life rafts so that we have something to cling to if the worst should occur.

Why bother with raising general knowledge if it’s every American for himself – instead push to cut education outside your own social group. Likewise for all social services and anything they you don’t benefit from directly. Indirect benefits don’t work in a system when everyone is defecting so don’t bother with them. Instead use the resources to build barriers between you and those below you.

This is a very good question. I have no good answer. One thing I do notice, Americans lately seem to favor thinking about what I shall for a lack of a better term call “mythological crises”. Examples: “Mayan Prophecy of 2012”, “Y2K”, even “The Clash of Civilizations”.

Mostly because its wasn’t news to me. The shift to short term debt is very disturbing, but IIRC, its been a pretty continual trend since the early 80s.

And businesses are the same way. Why was the collapse of the commercial paper market so devastating in potential? Because banks and everybody else depends so much on borrowing short term because today the cost is less, and people tend to grossly underprice interest rate risk, which seems strange with long term rates so incredibly low.

Likewise, we see this with people: The biggest reason individual homeowners are back to fix rate loans rather than ARMs is because the only lending is Fanny/Freddie, and they are structured to push fixed-rate loans which, in the long term, are safer for the average homeowner over a 10-30 year period.
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.Fabius Maximus replies: Not so…

“The shift to short term debt is very disturbing, but IIRC, its been a pretty continual trend since the early 80s.”

The average maturity was short during 1980-83, not long. The average maturity of the US public debt has swung between 50 and 70 months since 1980, per this (chart 8 from the Treasury’s Office of Debt Management, 3 August 2009). It was aprox 50 in 1980, aprox 70 in 1990 and 2000, and 50 again now.

The combo of massive debt, far higher as % gdp than in 1980, and short maturity that is potentially lethal.

Given this, why should the vast majority of people worry? All they have to do is have faith that once again the theory is wrong and some unforeseen circumstance will save us.

Dickens’ Micawber, “Maybe something will turn up.”

Perhaps it will once again, but it was a great deal more likely in the early 19th century, when the world’s population was so much smaller and much of the frontier remained to be settled. (Micawber ultimately did well in Australia, as I recall ).

Who knows? Perhaps the 2nd Law of Thermodynamics is no more true than phlogiston.

FM: Good point. I didn’t realize we did shift to longer term in the 90s. And it is natural to go short when rates are HIGH, so being short term centric in 82 is the right answer. When rates are LOW, you want to be long.

There is one very minor bright side however. When a government’s debt is currency denominated and LONG term (EG, >10 years on average), this creates an incentive for inflation. This incentive doesn’t exist when you have so much short term debt.
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.Fabius Maximus replies: Just so. That is one reason I believe the widespread (and absurdly confident) forecasts of inflation are wrong. As the maturity shortens (and inflation fears tend to force a shift to shorter maturities), inflation becomes less of a solution to the government — and more of a threat. Japan is the extreme case. After 20+ years fighting deflation by massive fiscal stimulus, their gross governement debt is 2x GDP. Inflation (and rising rates) would be terminal.

Everyone one around me is apathetic, even willfully so. I don’t know how to fight it. Not effectively anyway. I fear nothing will be done until the majority of people feel a sample of the pain that is to come if we don’t turn the corner on these problems.

“[T]he money of a State is not what is of compulsory general acceptance, but what is accepted at the public pay offices…” (Georg Friedrich Knapp 1924) “In an economy where government debt is a major asset on the books of the deposit-issuing banks, the fact that taxes need to be paid gives value to the money of the economy…. [T]he need to pay taxes means that people work and produce in order to get that in which taxes can be paid.” (Hyman P. Minsky 1986)

This paper examines the Chartalist approach to money, which can be traced from Adam Smith through Georg Friedrich Knapp to John Maynard Keynes and to Hyman Minsky. In the Chartalist approach, money is a creature of the State; at least in the case of modern money, one cannot conceive of Stateless money. The State defines money as that which it accepts at public pay offices (mainly, in payment of taxes). This has important policy implications. Taxes create a demand for money, and government spending provides the supply. The government does not “need” the public’s money in order to spend; rather, the public needs the government’s money in order to pay taxes. This means that neither taxes nor bond sales really “finance” government spending. It also means that the government can determine the “terms” on which the public obtains the money required to pay taxes; it determines what the public must do to “earn” government-provided money. This stands conventional analysis on its head: fiscal policy is the primary determinant of the quantity of money issued, and of the value of money, while monetary policy primarily has to do with interest rate determination. Thus, the Chartalist view of money, if fully understood, would lead to a much different view of appropriate monetary and fiscal policy goals. Most notably, it would be recognized that rather than striving for a balanced budget, deficits would be accepted as the “norm”. And rather than trying to use monetary policy to achieve stable prices, monetary policy would recognize that its role is to establish the short term interest rate, while fiscal policy would be used to stabilize the value of the currency.

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.FM reply: Thanks for posting. I consider the Levy Institute one of the top interesting sources of economic analysis, and have frequently cited them on this website.

So what would happen if China nailed a “Foreclosure Notice”?
1/ we could just nuke them; but it’d be better to just set India against them….I’m in agreement with the assertion that we’ll fight China to the very last…Indian (inhabitant of India) if it ever came to this. I actually think that China is an easier power to deal with than Russia is for the US and not necessarily a competitor – enemy, however the economic issues might lead to conflict after all.
2/ we would do nothing; US would (and maybe will) repudiate the debt.
That would lead to a collapse of the international financial and even economic system but that’s better than nuking people, right? At least, that would stave off the nuking for a while, while the world would follow the Orwellian geopolitical vision.
(I didn’t set on writing this with a thought of ending up with Orwell but there it is – a logical conclusion)

“So when China nails a Forclosure Notice to the White House door…” FM, that is probably not a bad idea. The denizens of our nation’s capital seemed mired in denial, so something dramatic may be necessary to shake them out of their stupor.

“I can hear all the conservatives cheering – but the values that are the biggest problem are exactly the ones they are most fond of.” Oblat, precisely which values are those? Please don’t tar all of us with the same brush, nor conflate members of the GOP with conservatives; the two are not the same thing these days, most of the time. Anyway, since you took a shot at conservatives, please ellaborate… be specific if you would. You might teach me something in the bargain.

Why bother with raising general knowledge if it’s every American for himself – instead push to cut education outside your own social group. Likewise for all social services and anything they you don’t benefit from directly. Indirect benefits don’t work in a system when everyone is defecting so don’t bother with them. Instead use the resources to build barriers between you and those below you.

I think he means the pervasive conservative attitude of ‘screw you, I’ve got mine’.
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.FM reply: The threads about unemployment benefits brought out dozens of people expressing exactly that view. I found them discouraging reading.

Some time ago when I got to the States I used to say that the Democratic party consisted of apparatchiks (and I now what I’m talking about) and feeble minded ideologues (the 60’s leftovers);
Over the past 8+ years GOP has been high jacked by hyperactive ‘out of the reservation’ ideologues, simpletons (not the same as: “simple people”) i.e. Hanity (C. Paglia coined the term: ‘hanitization of America) and people who think they have been ordained by God or History (depending on the point of view) and thus, responsible only to God or History. Hyperactivity, doctrinarism and zealotry that’s the usual characteristics of converts and neophytes (e.g.: neo-cons)
Today’s Democrats are just energized apparatchiks and energized, on caffeine feeble minded ideologues (coffee wasn’t a big thing yet in the States when I got here.) So it was Starbucks behind the ascent of the Dems. ha, ha
My GOP? Where is it? it doesn’t need 6 seconds to self-destruct it has already done that.
The Dems. are now the GOP’s biggest hope.